Taughannock Falls

Wednesday, November 2, 2011

"When taxes are reduced for one group, government must raise taxes on someone else, run bigger deficits, or cut programs. Tax havens, jurisdictions with strong secrecy provisions and low or zero tax rates, are one way that rich individuals and corporations reduce their tax payments, both legally and illegally. A recent book by Ronen Palan, Richard Murphy, and Christian Chavagneux summarizes the latest work on tax havens and contends that they form a central part of the global economy. Tax Havens: How Globalization Really Works presents data that 30% of multinational corporations' foreign direct investment passes through tax havens like Bermuda, Ireland, or Luxembourg, overwhelmingly for tax purposes. Tax havens, then, are far more central to the global economy than we generally suppose.How much does this cost average taxpayers? In a separate report, Murphy calculated that wealthy individuals have roughly $11.5 trillion in tax havens, which at a 7.5% rate of return would generate $860 billion in income each year. If, on average, these people faced a 30% marginal tax, that would come to $255 billion annually that the rich avoid in taxes. Needless to say, this is a best guess, since the value of these assets is not disclosed publicly. See his report for more details on how he generated those figures.That's just individuals. The situation with corporations is murkier still. While corporations set up subsidiaries in tax havens for the obvious purpose of reducing their tax, Palan et al. say there is no solid estimate of the overall cost of these activities. The Government Accountability Office reported in 2008 that of the largest 100 U.S. companies, 86 had subsidiaries abroad, and 83 of these had subsidiaries in tax havens. Bank of America had 115 subsidiaries in tax havens, including 59 in the Cayman Islands. Citigroup had a whopping 427 tax haven subsidiaries, including 91 in Luxembourg and 90 in the Cayman Islands. Goldman Sachs only had 29, 15 in the Cayman Islands.I mention the Cayman Islands because President Obama has long been a critic of tax havens, saying during the 2008 campaign of Ugland House in the Cayman Islands, "Either this is the largest building in the world or the largest tax scam in the world. And I think the American people know which it is." Palan et al. report that the Caymans are the sixth largest financial center in the world, with $1.9 trillion in assets in December 2007. However, since taking office, the President has not succeeded in passing a version of the Stop Tax Haven Abuse Act, which in its original form he co-sponsored with Carl Levin, Norm Coleman, Ken Salazar and Sheldon Whitehouse.Tax havens could not exist without the financial services industry, which provides the tax lawyers, accountants, and other professionals who make it possible for the rich and corporations to reduce their taxes. Collectively, they and their clients are the 1%. Occupy Wall Street has highlighted the abuses benefiting them, and tax havens are most definitely part of their pattern of abuse. Tax havens have proved amazingly resilient, however, and it will take sustained political pressure to shut them down."

So, Leftsiders... can we start putting some "sustained political pressure" on our elected officials?